Putting
Governance
into
Practice
10 Principia of Effective Corporate Governance
Andre
1 2 3 w
Cham
6 ber
4 5 7
8 9 10
END
ANY QUESTION?
1 Stakeholder control of Business
•reviews and approves the major
financial and securities transactions
of the company as well as dividends,
results announcements and the
business of the Annual General
Meeting
2 Maximum and reliable public reporting
•Published reports are only as good as the reliability of the
information contained within them. Unfortunately
requiring companies to report on corporate governance
compliance does not always mean the authoritative
guidance has been adopted by the company. At times, a
company will simply copy the standard wording used by
those companies who are taking more of a lead in
corporate governance reporting.
3 Avoidance of Excessive Power
Statutory duties:
• a director must not put himself in a position
where the interests of the company conflicts with
his personal interest or his duty to a third party.
• a director must not make a personal profit out of
his position as a director unless he/she is permitted
to do so by the company.
• a director must act in what he/she considers is in
the interests of the company as a whole, and not
for any collateral purpose.
4 Balance Board Composition
A running source of tension on the board may be the
dividing line between executive and nonexecutive
responsibilities. The finance director may feel that the
chair of the audit committee, and the audit committee
itself, is trespassing into his or her area of executive
responsibility. Examples of this might be the general
reporting by internal audit to the audit committee, the
approval of an internal audit needs assessment by the
audit committee, the commissioning of a special
assignment to be conducted directly for the audit
committee—and so on.
5 Strong involved BOD
The board is responsible for reporting on their corporate
governance arrangements. The IIA has provided a definition of the
board: ‘A board of directors, audit committee of such boards, heads
of an agency or legislative body to whom internal auditors report,
board of governors or trustees of a non profit organisation, or any
other designated governing bodies of organisations.
1. establishing vision, mission and values;
2. setting strategy and structure;
3. delegating to management;
4. exercising accountability to shareholders and
being responsible to relevant stakeholders.
6 Strong, Independent Element of BOD
The responsibilities of individual company
directors have been documented by the Institute of
Directors:
• determining the company’s strategic
objectives
• monitoring progress towards achieving the
objectives and policies
• appointing senior management
• accounting for the company’s activities
to relevant parties e.g. shareholders
7 Effective Monitoring
Monitoring of controls—BBC Worldwide has a formally constituted Risk
Management and Internal Control Committee (RMICC) comprising the
Board of Directors with the Head of BBC Internal Audit (or Deputy) in
attendance. This has responsibility for reviewing the effectiveness of BBC
Worldwide’s internal control environment and ensuring that existing controls
and procedures are followed. It meets regularly to consider, inter alia, reports
from internal and external audit. The BBC Internal Audit function undertakes
regular testing of control systems under a plan agreed by the BBC’s
Audit Committee and the RMICC. The programme of testing, which is
updated every four months, is based on assessment of key risks
and issues. The results are reported to the RMICC.
8 Competence & Commitment
1. Listed companies must have a majority of independent directors.
2. In order to tighten the definition of ‘independent director’ for purposes of these
standards. . .
3. To empower non-management directors to serve as a more effective check on
management,
the non-management directors of each company must meet at regularly scheduled
executive
sessions without management.
4. (a) Listed companies must have a nominating/corporate governance committee
composed
entirely of independent directors. (b) The
nominating/corporate governance committee
must have a written charter
8 Competence & Commitment
5. (a) Listed companies must have a compensation committee composed entirely
of independent directors. (b) The compensation committee must have a written
charter. . .
6. Add to the ‘independence’ requirement for audit committee membership the
requirement that directors’ fees are the only compensation audit committee
members may receive from the company.
7. (a) Increase the authority and responsibilities of the audit committee, including
granting it the sole authority to hire and fire independent auditors, and to approve
any significant non-audit relationship with the independent
auditors. (b) The audit committee must have a written charter. . . (c)
Each listed company must have an internal audit function.
9 Risk Assessment & Control
Risk Management Committee:
Reviews and considers issues relating to the
protection of people and property in the
achievements of the company’s business goals and
profitability. This includes considering the placement
of an annual assurance programme and making
appropriate recommendations to the Board. The
Committee is also charged with checking that the
Board and management are acting in compliance
with all relevant environmental resource
management legislation.
10 Strong Audit Presence
Audit committees are important in corporate
governance but they are only committees of
the main board, and are dealt with in a
separate section of this chapter.
